Transcript: Friday, October 17, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib, brought to you in part by —

(COMMERCIAL AD)

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Stock revival, at least
for today. The Dow and the S&P 500 having one of their best days of the
year, ending this wild week on a positive note. But is it safe to say the
bottom is in?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Small cap disconnect.
As big company stocks sizzled today, small cap shares fizzled after several
days of gains. What`s ailing the little guys this year and where are the
bargains now?

GHARIB: And deepening divide. The public disagreement within the
Federal Reserve over what it should do next.

We have all that and more on NIGHTLY BUSINESS REPORT for Friday,
October 17th.

MATHISEN: Good evening, everyone, and welcome.

Rarely in recent years has the Friday been so welcome on Wall Street.
And this thankfully for the most part was a Friday of healing for stocks
after a week that laid bare practically every one of the markets`
vulnerabilities.

Today, the Dow Jones industrial average ended a six-day losing streak,
a slide marked by the kind of turbulence that investors hadn`t seen in
years. It shot up 263 points, buoyed by strong earnings, some good
economic news, and a fierce rally overseas in European stocks. All 30 Dow
blue chips ended in the green, the NASDAQ gained 41 points, and the S&P was
up 24 points.

For the week, though, it was the fourth week in a row of losses, the
Dow fell 1 percent, the NASDAQ was down a half percentage point, and the
S&P also lost about 1 percent.

But those numbers masked a truly unsettling week for stocks. And, by
the way, for the 10-year treasury, it took a magical mystery tour for its
own this week before ending with a yield of roughly 2.2 percent, and that
was roughly where it was a week ago.

Bob Pisani now on the wild week that was in the markets and whether
investors have seen the worst for a while.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Large cap stocks
staged a big rally, though not enough to bring the S&P 500 into positive
territory for the week. The initial catalyst was comments from a European
Central Bank representative that they would begin buying assets to support
the market in a matter of days. That was news, and stocks moved up.

Now, is this the bottom? This is very tough to call. There`s two
issues. The first is that slowdown in Europe. That has not been resolved.
European leaders still need to enact reforms.

But today`s comments indicate that the central bank there is willing
to keep rates low and begin buying assets to support the market. So, the
issue is not re solved but it`s looking better from an investor
perspective.

The second big issue is Ebola. No one knows how to model this. And
this is a real X factor for stocks.

This could be a nonissue in a month or it could be a big problem. We
don`t know. Travel stocks like airlines and cruise ships which have been
sold heavily this week all rally today, but that`s just today.

And the rally, by the way, was largely a big cap event today. The S&P
500 was up on the day, but the small cap Russell 2000 turned negative in
midday. But the Russell out-performed the S&P all week, so it`s likely the
S&P is just playing catch-up.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock
Exchange.

(END VIDEOTAPE)

GHARIB: During this week`s market turmoil, investors witnessed a sort
of David and Goliath scenario with small caps stocks easily outperforming
much larger companies and the overall market, as well. Could this signal
the opportunity for investors to make a big move into small caps?

Morgan Brennan takes a look.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s been a rough couple of months for small cap stocks, with the Russell
2000 down roughly 10 percent from its July high. Investors have watched
the group closely because they are seen as an indicator for the broader
market.

But this week, the index saw something of a rally, out-performing the
larger Dow Jones Industrial Average, and the S&P 500, in what was a very
tumultuous week for stocks.

Some experts say this maybe the start of a new trend, for small caps,
and possibly for the markets.

STEVE DESANCTIS, BANK OF AMERICA MERRILL LYNCH SMALL CAP STRATEGIST:
We`ve seen the bottom in that we`re going to have a pretty good fourth
quarter in terms of performance. So, our goal is to get back to at least
break even for a small cap performance on a year to date basis by the end
of the year.

BRENNAN: Small caps are smaller publicly traded companies, with a
market capitalization of $300 million to $2 billion. The high momentum
tends to experience bigger swings in the larger, more stable blue chip
stocks. But unlike the big multinational companies on the Dow, the small
caps drive more than 80 percent of their revenue on average from the U.S.,
so they`re more insulated from foreign market turmoil and currency
headwinds associated with a stronger dollar.

Analysts say small caps look expensive for most of the year, but the
recent sell-off has made them more fairly valued. As investors worry about
slowing growth abroad, these stocks could become an increasingly attracted
investment.

DESANCTIS: If the U.S. economy holds in there and we get to see the
GDP growth, the earning estimates for the third quarter look pretty
reasonable. And so, I think you`re going to see pretty big beats and that
will drive performance.

BRENNAN: For that reason, Desanctis likes tech companies and
industrials, but he remains wary of consumer discretionary, particularly
retailers.

(on camera): Nonetheless, there are plenty of risks. Small caps are
very volatile and that`s expected to continue. They`re also more sensitive
to interest rate hikes. One reason the Russell 2000 tumbled in the first
place, and analysts swore that it`s important to be picky, to do research
and invest in certain stocks specifically.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Mike Balkin joins us now to talk more about what`s going on
in those small cap stocks, which remain down about 7 percent for the year,
and off about 10 percent, from their intraday summertime highs.

Mike, welcome. Good to see you.

I guess we shouldn`t be surprised that small caps have been more
volatile than big company shares all summer. They`re doing what we kind of
expected them to do, aren`t they?

MIKE BALKIN, WILLIAM BLAIR CO-PORTFOLIO MANAGER: Well, certainly,
they`re doing what we expect them to do. Usually October is one of the
worst months for small cap performance out of the year each time. And so,
again, we`re not really surprised. Maybe the volatility has been a little
more that most would have expected. But given the strong performance of
small caps had last year and the first part of this year, it`s not a
surprise to us.

GHARIB: So, is the new trend to buy small caps? Is this a time to
start filling your portfolio with some of these smaller companies?

BALKIN: Well, we certainly think so. We found valuations to be
somewhat challenging for a good part of the year, and the last few weeks
have given us a lot of great buying opportunities. I know some of our
analysts are salivating at where some of the stocks have gone here over the
last few weeks.

So, we think this is good time to buy small caps, and that`s not to
say there`s not going to be a few more bumps on the road along the way.
But small caps tend to act somewhat poorly, going into midterm elections
and then tend to act pretty well coming out of that. So, I wouldn`t expect
this time to be any different.

MATHISEN: So, I don`t want you to show your hand totally here. But
you say you have been buying. What have you been buying?

BALKIN: Well, I tell you, I have to shoot you if I told you what we`d
be buying. But there is a lot of tech stocks that look a lot more
interesting to us right now. And we`re actually starting to dabble a
little bit around the edges on some of the consumer names. But I think on
the whole, things are looking a lot more interesting across all the
sectors.

GHARIB: But, you know, Mike, it is hard to find good small caps, how
do you even research this if you`re an individual investor. With the large
cap you know to look at the blue chips, some of the big household names and
some of the biggest companies in America. But when it comes to small caps,
even Morgan when she was reporting says you`ve got to be selective and
picky.

Are you better off just buying into a small cap fund like yours? Or
how do you identify these small winners?

BALKIN: Well, I tell you. I mean, again, I think buying a fund makes
a lot more sense. Now again, I`m biased, since I do run a small cap fund.
But I think it`s very difficult to go out on your own and do a lot of
research on these small companies. We`ve got 10 analysts across all the
different sectors scouring across the nation, looking for some of the best
small cap ideas out there. And I think that, again, that`s the way to do
it, and buying companies with good fundamentals, good valuations over the
long run, you`re going to make good money there.

MATHISEN: Is the economic climate right now favorable to small caps?
In other words, you know, large cap shares are vulnerable I think to a
rising dollar, small caps less so because they derive most of their income
from domestic sales.

BALKIN: Yes, I think that`s right. I mean, again, small caps being
less liquid do tend to be a lot more volatile than the large caps. But I
think people right now, earlier in the year, it was let`s buy the large cap
stocks with good international exposure, because everybody thought Europe
was recovering and China was getting stronger. Now, some of the recent
news we`re seeing is that Europe is weakening, China is slowing down a
little bit, so people are scurrying back to the United States and buying
some of the smaller cap companies. I think that`s part of what`s happening
here.

MATHISEN: All right. Mike, thank you very much for steering us
through those shoals of the small company shares.

Mike is with the William Blair Small Cap Fund.

BALKIN: You bet.

GHARIB: Turning to the oil markets now, oil prices rose along with
stocks today, bouncing off a four-year low but not by much. Domestic crude
added 5 cents a barrel, closing at $82.75. Brent Crude rose by 34 cents a
barrel. For the week, West Texas intermediate fell 3 1/2 percent, down for
the fourth week in a row. Brent crude was lower for the third straight
week by almost 5 percent.

MATHISEN: And more now on those strong before the bell earnings we
mentioned at the top of the broadcast.

One of the big drivers in the Dow today was General Electric
(NYSE:GE). It reported an earnings beat last quarter, out-stripping
analyst forecast. Profits up 13 percent after the industrial giant sold
more jet engines and more oil and gas drilling gear. Shares today up more
than 2 percent.

GHARIB: Also topping Wall Street estimates, Morgan Stanley (NYSE:MS).
Profits at the investment bank surged 87 percent in the third quarter
thanks to a jump in stock and bond trading and in the firm`s wealth
management unit. Morgan Stanley (NYSE:MS) shares rose 2 percent today to
$33.22.

MATHISEN: And in economic news, some good news about housing,
construction of new homes, up more than 6 percent last month, thanks to a
spike in new apartment complexes and multifamily units. That help sent
shares of some of the nation`s largest home builders through the roof
today. Take a look there. D.R. Horton (NYSE:DHI), KB Homes, Hovnanian
edged up 6 percent, Lennar (NYSE:LEN), Pulte up more than 4 percent.

GHARIB: Meanwhile, mortgage giants Fannie Mae and Freddie Mac are
close to a deal with lenders that would greatly expand credit to would-be
home buyers while protecting those same lenders from allegations of making
bad loans, over the last few years, Fannie and Freddie have reached tens of
billions of dollars in penalties from lenders because of under-writing
mistakes on loans sold to those government guarantors. Lenders have blamed
those penalties for forcing them to tighten credit restrictions.

MATHISEN: And like a house divided, some public disagreement for
members of the Federal Reserve about when exactly to stop pumping the money
spigot and raise benchmark interest rates. So, will the Fed re-think what
to do about the bond-buying program that sounds like a cruise ship? QE3.

Steve Liesman takes a look.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The recent market turmoil, low inflation and global economic weakness
prompted the Federal Reserve to delay plans to end its bond buying program
at its meeting just two weeks away. There is something of a public
disagreement within the Fed on the matter.

Boston Fed President Eric Rosengren in an interview suggested the Fed
is likely to follow through on plans to end the two-year-old quantitative
easing program otherwise known as QE later this month.

ERIC ROSENGREN, BOSTON FED PRESIDENT: We have made a lot of progress
in labor markets. We`re at 5.9 percent on the unemployment rate. We were
much higher at the outset of the program. The program was really designed
that once we made substantial progress on the unemployment rate, in labor
markets more generally, that that program would end. If it looks like
we`re not going to get that kind of progress now and going forward, then
we`d have to reconsider it. But I`d be surprised that within the next two
weeks, we`d get enough data that make us change or mind on that.

LIESMAN: Rosengren, one of the doves on the rate-setting federal open
market committee did say the Fed needs to monitor Europe more carefully.
Cheaper oil at a more expansive dollar, he said, would keep inflation below
the Fed`s 2 percent target for sometime.

But his comments on QE seem at odds with those of St. Louis Fed
President Jim Bullard. He said yesterday the Fed should delay ending the
program because of low expected inflation.

It`s unclear where Fed Chair Janet Yellen comes down. She spoke today
at the Boston Feds conference alongside Rosengren. But she made no mention
of current monetary policy. Instead, she spoke about income inequality.

JANET YELLEN, FEDERAL RESERVE CHAIR: The extent of and continuing
increase in inequality in the United States greatly concerned me. The past
several decades have seen the most sustained rise in inequality since the
19th century. I think it`s appropriate to ask whether this trend is
compatible with values rooted in our nation`s history.

LIESMAN (on camera): If you really want to read the tea leaves, the
absence of any comment on current economic policy could be a sign that
despite the recent market volatility, Yellen is content at least for now to
leave in place the market expectation that QE will end as scheduled in
October.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GHARIB: Still ahead, looking for some steady-eddie stocks to buy and
hold in this volatile market. Our next guest has a list of
recommendations. That`s next.

(MUSIC)

MATHISEN: The U.S. now has an Ebola czar. President Obama has tapped
trusted political adviser Ron Klain, a one time of chief of staff to Vice
Presidents Joe Biden and Al Gore to spearhead the government`s response to
the deadly virus. He will, of course, closely monitor the care of those
two Dallas nurses who contracted the disease from an infected patient who
later died.

Meantime, the drug maker Chimerix has gotten an FDA approval to test
its experimental anti-viral drug on Ebola patients. Still, shares of
Chimerix fell 3 1/2 percent today, as you see. While shares of the rival
Ebola drug maker Sarepta Therapeutics, which said its drug has no bad side
effects, well, they were down a fraction.

GHARIB: Honeywell may be in a buying mood, and that`s where we begin
tonight`s “Market Focus”.

The company says it`s considering potential acquisition targets after
it posted better than expected third-quarter profits and raised its
earnings and revenue outlook for the year. Its strong quarter was driven
by sales gains in almost all of its units. Shares rose more than 4 percent
to $90 and change.

Bank of New York Mellon (NYSE:BK) saw its profit rise as it made more
money from investment fees in its third quarter, but revenue came in below
analyst estimates. Still, the stock was up 20 cents to $36.36.

Textron (NYSE:TXT) reported a 60 percent jump in quarterly profit,
thanks to a lift in higher deliveries in its aviation unit. Encouraged by
that strong demand, the maker of Cessna jets also raised its full-year
earnings forecast. Shares rose about $3 to $36.65.

Amgen (NASDAQ:AMGN) has filed a patent infringement lawsuit against
Regeneron Pharmaceuticals (NASDAQ:REGN) and Sanofi over their experimental
cholesterol drug. The suit alleges that the two companies are violating
three of Amgen`s patents and it`s seeking to stop the companies from
marketing their drug. Despite the legal battle, though, shares of all
three companies ended higher with Regeneron up more than 8 percent.

MATHISEN: Mead Johnson rose on takeover rumors. The French food
giant Danone reportedly has its eye on the company as a takeover target.
That sent shares of the firm up about 10 percent to $100.23.

CF Industries (NYSE:CF) and Norway`s Yara International have called
off their $30 billion merger deal. That deal would have created a massive
player in the fertilizer industry. Apparently, the two firms couldn`t
agree on the terms of the combination. Shares of CF down 3 1/2 percent to
$244.96.

News that Cliffs Natural will take a big charge in its third quarter
sent shares tumbling. The mining company said it would write down the
value of its coal and iron ore assets by $6 billion because of weak prices.
The stock fell 8 percent to $8.74.

And General Motor`s top lawyer, Michael Millikin, is retiring next
year. Millikin`s department was heavily criticized for how it handled the
ignition switch recall that has now been linked to at least 27 deaths. The
automakers say it will immediately begin an external search for his
replacement. Shares of GM up 30 cents today. They finished at $30.24.

GHARIB: Our market monitor guest today says he is looking beyond the
ups and downs of the market and that he`s been buying some good quality
stocks this week.

He`s Kevin Caron, portfolio manager at Stifel Private Client Group.

Kevin, so nice to have you with us here.

KEVIN CARON, STIFEL PRIVATE CLIENT GROUP: Thank you for having me.

GHARIB: So, let`s get right to it.

Raytheon (NYSE:RTN) is at the top of your list. You`re saying the
stock over the next 12 months can be up 18 percent. What`s so special
about Raytheon (NYSE:RTN)?

CARON: Well, all three of these stocks and to lead off with Raytheon
(NYSE:RTN), the idea is to have very steady companies, because we have now
gone to a period where we`ve had an improving economy for five years now,
and we just want to be thinking about how to get through the next several
years, which might be a little more difficult at some point.

So, Raytheon (NYSE:RTN) is very good cash flow, excellent balance
sheet, raising its dividend and buying back shares. And ultimately, the
business is very sound. They`re the maker of Patriot missiles,
geopolitically, given the instability that we have in the Middle East, it`s
obviously an attractive — they`re in an attractive spot for the products
they sell in that region.

MATHISEN: So, that`s sort of a bet on an unsafe world in a way?

CARON: Well, in a way. But also realize that the — that this is a
very steady company in terms of their underlying fundamentals. If you look
at the cash flow, if you look at their balance sheet, very sound. And
ultimately, what we want to do is make sure that the companies we own a
portfolio have those kind of characteristics.

MATHISEN: You have a price target with a 20 percent gain. Your
second choice has a somewhat more modest price target. Tell us about that
one.

CARON: Sure. We`re talking about Intel (NASDAQ:INTC), correct?

GHARIB: Right.

CARON: So, Intel (NASDAQ:INTC), what we`re looking at is a company
that obviously is best in its class in terms of being able to deliver very
low cost, very efficient processers for computers. And even though the PC,
there has been a lot of talk about the way the PC is going in terms of
sales, one thing we do know is that PCs are getting smaller. That means
they need to be able to have very efficient processers. Intel
(NASDAQ:INTC) is a leader in the pack in terms of being to do that kind of
work. There is none other that I think can compete as effectively as Intel
(NASDAQ:INTC) given their size and scope.

And, secondly, in terms of the server marketplace, which is very
profitable, they are dominant there and it`s growing very nicely. And with
the trends in business expected to pick up, we think they do very well.

GHARIB: You have the health care recommendation, Abbott Labs, ABT on
the New York Stock Exchange. A lot of news Abbott Labs over the last
couple of weeks.

CARON: Sure. Abbott Labs is a slim down Abbott Labs. They spun off
Abbvie.

Now, you are looking at a company that`s very well-diversified in
terms of its product mix. They have branded generics. They have their
pharmaceutical business. They have medical devices. They`re also
diversified internationally. They have about half of their revenue — just
shy of half the revenue — coming from emerging markets which are growing
very nicely. And they`re paying a decent dividend.

So, overall, you`ve got a diversified company with a dividend, with a
very good balance sheet consistent with profitability and should be able to
get through just about anything the world throws at them in the years to
come.

MATHISEN: And you`re saying that about all three of these stocks.
That these are buy and hold, even if the markets do crazy swings over — a
lot of volatility over the next couple of weeks.

CARON: Yes, the spot you just had about small caps for example, that
was indicated of the market of the last few years, has been very rewarding
to companies that have been more exciting. That can`t go on forever.

So, what we`re thinking about is how — even though right now, we see
the economy growing, we see the data coming in very strong on terms of
industrial sales and employment, all of these things, we want to make sure
over the long-term if and when we do have a slowdown in these more
consistent kind of characteristics or demanded by investors, we want to
make sure their position —

MATHISEN: Boring is beautiful, or it can be in certain markets.

CARON: Certain markets.

MATHISEN: Very quick thought here as we end this very turbulent week,
what did you make of it? What do you think is ahead?

CARON: I think a lot of what we saw this week has to do with
discontinuity between the message from central banks who on the one hand
are struggling to find ways to continue quantitative easing. And, on the
other hand —

MATHISEN: Or start it in Europe.

CARON: Or start it in Europe. Yes, so you have this kind of
conflict.

And then you have the fiscal authorities around the world who are
dialing back deficits.

So, one of the difficult things we are seeing is that the economy is
getting better. It`s suggesting we need less stimulus. And the market so
far has been sponsored largely by QE, and then the taper. And now, the
question is whether we need to start the un-taper.

GHARIB: Real quickly, in a word. Next week, stocks up, down?

CARON: I think we`re going to have a volatility for a while to come,
but I think you fear, because I think ultimately, as long as the data is
moving in the right direction, this is — this is a time to go and look for
quality stocks to put in the portfolio.

GHARIB: All right. Kevin, thanks so much for coming by. Have a
great weekend.

CARON: Thanks for having me.

GHARIB: Kevin Caron with Stifel Private Client Group.

Tyler?

MATHISEN: And still ahead: the iPhone 6 made its debut in China. Did
the device wow consumers in one of Apple`s most important markets?

(MUSIC)

MATHISEN: China`s economy is still growing but at a slower pace than
official there is would like. So, now, China`s central bank is planning to
inject up to $33 billion into 20 large national and regional banks to boost
lending in the world`s second largest economy.

GHARIB: Apple`s all-new iPhone 6 finally went on sale in China today.
So, what was the reaction in the world`s largest smartphone market?

Eunice Yoon reports from Beijing.

(BEGIN VIDEOTAPE)

(CHEERS)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
lines outside the Apple (NASDAQ:AAPL) stores in China were orderly and calm
for the official debut of the iPhone 6, but that doesn`t mean people were
not excited about the phone. The launch was delayed about a month because
of the licensing issue, creating a flourishing black market where some fans
bought the phones for as much as $3,000.

However, people here can now get the iPhone 6 and 6-plus for more
reasonable prices, only a couple more $100 more than the United States.

Most of the buyers here like the big screen.

UNIDENTIFIED MALE: It`s 126 kilobytes. I like the wide front, the
golden color is a bit too flashy.

UNIDENTIIFED MALE: The iPhone 6 has a bigger screen, better to watch
movies on them. It`s faster and supports 4G. So, it`s faster to surf on
the internet.

YOON: Unofficial reports put pre-orders here at 20 million, though
some analysts warn that the figure is likely heavily inflated by eager
customers who register multiple times. China is one of Apple`s biggest
markets.

But the company is facing growing competition here. One local company
is doing what they can to help offering free tailoring systems so new
buyers can alter pants pockets to fit their iPhone 6.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

MATHISEN: And finally tonight, if it can happen to the president, it
can happen to just about anyone. While signing an executive order boosting
security on federally insured credit and debit cards, President Obama said
his personal credit card was rejected at a New York City restaurant last
month during a U.N. visit.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I went to a restaurant
up in New York, when I was at the U.N. General Assembly, and my credit card
was rejected.

(LAUGHTER)

OBAMA: I turned out I guess I don`t use it enough. They thought
there was some fraud going on. Fortunately, Michelle had hers.

(LAUGHTER)

(END VIDEO CLIP)

MATHISEN: Oh, the late-night comics are going to have time with that.

The White House press secretary confessed he did not know the current
status of his card, they know where he lives after all. He also joked that
it`s unclear whether he left a tip at the bottom of that executive order he
was just signing.

GHARIB: What`s going on? Ben Bernanke can`t get refinance a
mortgage.

MATHISEN: He can`t get a mortgage.

GHARIB: Obama can`t use his credit card. What`s going on?

That`s NIGHTLY BUSINESS REPORT for us for tonight. Thanks so much for
joining us. I`m Susie Gharib.

MATHISEN: And I`m Tyler Mathisen. Thanks again from me. And have a
great week, everybody. Monday, right here.

END

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